I have €20,000 for a deposit and am saving €1500 a month but lenders are still refusing a mortgage for my self-build home project – what are my options?

I have €20,000 for a deposit and am saving €1500 a month but lenders are still refusing a mortgage for my self-build home project – what are my options?

Posted on 09Nov

Source: https://www.msn.com/en-ie/money/other/i-have-20-000-for-a-deposit-and-am-saving-1500-a-month-but-lenders-are-still-refusing-a-mortgage-for-my-self-build-home-project-what-are-my-options/ar-AAQ4kET?ocid=finance-verthp-feeds

I am currently attempting to get a self build mortgage in the west of Ireland. I know the timing is not the best.

I had spent money on a QS to get costs of the build. I own the land, have the planning approved and an engineer ready. I have approached a number of lending institutions who are telling me that I don’t have enough disposable income.

When I ask for the formula used to calculate this no one will divulge this information. I have three children and am looking for €214,000 with €20,000 in savings and €1,500 a month added to that.

For a 20 year mortgage costing €1,105 per month I am still getting refused.

I’m not sure what they are looking for. If I can save enough each month that has €400 of contingency for interest rate increase or get 20 year fixed rate, why do they say I don’t earn enough? Can you help?

This must be irritating for you especially as it seems as though you could feasibly support this mortgage amount.

I would disagree with your first comment however, timing has never been better!

While construction costs are inflating, getting a mortgage is currently, for most, the easy bit. There are a few elements here which I’ve asked Joey Sheehan, author of ‘The Mortgage Coach’ to address, but first I’m curious as to why your email doesn’t mention the Help to Buy scheme.

This is a very valuable tax rebate available from Revenue which effectively refunds all the tax you (and your partner, if applicable) have paid over the last four years to a maximum of €30,000.

This would bring your deposit up to €50,000 which would appease any bank greatly as it de-risks the loan to value ratio for them. It is available on one off new builds as well as new home schemes and I can only assume if you have not applied for it, it may be because you are not a first time buyer.

Mr Sheehan adds: “This is frustrating however each bank has a different stress testing calculation.

“The first thing to do is to use the longest term possible which reduces the stress test. So for example, while you wish to avail of a 20 year term, if you are only say 35 years old, you could actually avail of a 35 year term (to age 70) which stress tests the application much easier and should help with a higher loan amount as the monthly repayments will be lower.

“You can always alter it during the term. If you are older, say 45, then your term will be limited to 70 minus your age which would be a 25 year term. I would definitely apply for the Help To Buy scheme as the loan amount is 70pc or more of the build cost plus site value”.

While every case is different a specialised mortgage broker may be able to do the leg work for you for a modest (or no) fee.

I’m interested in the shared equity scheme announced by the government as I am anxious to buy a home but cannot afford the mortgage necessary. Can you explain how it would work and what the limits on it are?

The Government announcement on this proved to be a little previous.

The Central Bank has taken issue with some elements and wants to take a further look. But they are due to report on this next month and we may have more clarity of how it will work then.

It’s based on an existing scheme in the UK which works quite well in expensive areas like London.

Essentially all that is happening is that if you, under certain conditions linked to your income, status and house, ‘buy’ a home for say €300,000, and cannot afford all of the loan on this, the State will take a stake in it, probably around 20pc for five years or so, and you only pay the mortgage on the remainder.

There would also be price caps on these homes in certain Local Authority areas.

On the plus side, it would create a building stimulus on unused land, with the guarantee that the homes would be somewhat affordable.

The concerns are whether it could be inflationary and force borrowers to take on too much debt.

If developers know that the State will be co-owner, then they might see the price as a target instead of a limit. In addition, there could be legal problems where the bank doesn’t have first call in the event of mortgage default, and whether they would be forced to lend in breach of their own rules, above the Central bank limits.

As for insurance, what life insurance, or indeed, home insurance do you effect and who owns the policy?

When all is clearer, and we have guidance on the scheme, I’ll be writing again on the topic, as will other commentators, and we’ll have a better sense of how it will work.

Email your questions to siryan@independent.ie

The Ryan Review

We may think we’re alone in having unaffordable mortgages on overly expensive homes, but we’re in the penny ha’penny place compared to Japan.

They were forced to introduce 100 year mortgage terms in the 1990s. The inter-generational home loan saw houses (and debt) passed from grandparents through children and grandchildren. It was because of the sheer price of the most expensive real estate on the planet (Tokyo), and also inheritance tax laws which saw most of a family’s wealth whipped away on death.

The long term loan meant the house was never unencumbered, and therefore saved to the next generation.

I was reminded of it with research from Aviva showing that 27pc of mortgage holders expect to still be paying off their loan into retirement, helped by part time jobs to supplement their pension income.

While we had a ‘moment’ here where banks were falling over themselves to offer mortgages with parents as guarantor, I’m not sure it would catch on.

But, hey, it’s the Irish housing market. Anything might happen.

Sinead presents The Home Show on Newstalk every Saturday morning at 8am

Number of people switching their mortgage is highest on record

Posted on 01Nov

Source: https://www.msn.com/en-ie/money/other/number-of-people-switching-their-mortgage-is-highest-on-record/ar-AAQ097d?li=BBr5Fap

As inflation bites across the board, the number of people switching their mortgage is at the highest level on record, figures reveal.

Mortgages borrowing is at its highest level since the height of the boom 15 years ago.

But it comes amid a backdrop of thousands of hopeful homebuyers being squeezed out of the market by a dearth of properties for sale.

Millions of euro in lockdown savings are also adding fuel to property bidding wars.

A report on Tuesday from the Banking and Payments Federation of Ireland shows many have used lockdown to find better deals.

Switching activity grew strongly in September, with volumes up by 36.6% year on year and almost 7,000 switcher mortgages approved in the 12 months ending September 2021 – the highest annualised level on record.

But the booming figures don’t necessarily spell good news for prospective house buyers.

Housing campaigner David Hall, of the Irish Mortgage Holders Organisation, warned: ‘This is a very difficult environment for those seeking a home. It shows a continued strong performance; however, less than half those approved seem to draw down, indicating a severe lack of supply.’

He also called for more action to tackle property investors snapping up homes ahead of would-be first-time buyers.

‘It is essential some legal mechanism is found to exclude vultures from buying starter-homes,’ Mr Hall added.

A total of 11,479 new mortgages to the value of €2,784million were drawn down by borrowers during the third quarter of 2021.

This represents an increase of 40.9% in volume and 42.3% in value on the corresponding third quarter of 2020, when the country was in the middle of a lockdown.

First-time buyers remained the single largest segment by volume (52.7%) and by value (52.8%).

And their report also showed that total of 4,769 mortgages were approved in September 2021 – some 2,639 were for first-time buyers (55.3% of total volume) while mover purchasers accounted for 1,167 (24.5%).

Mortgages approved in September 2021 were valued at €1,205million – of which first-time buyers accounted for €668million (55.4%) and €336million by mover purchasers (27.9%).

BPFI chief Brian Hayes said: Almost 54,400 mortgages were approved in the 12 months ending September 2021, valued at almost €13.5billion, suggesting a strong pipeline for future demand as we move into the last quarter.’

Trevor Grant, chairperson of the Association of Irish Mortgage Advisors, said: ‘Ireland’s mortgage market is the busiest it has been in years. There’s no doubt that supply issues are making it difficult for prospective homebuyers, but healthy and intensifying competition between lenders mean first-time buyers and existing mortgage holders are in a strong position when it comes to securing good rates and terms.

‘While the volume of mortgage applications would traditionally slow down towards the end of the year, the feedback we’re getting from mortgage brokers across the country is that they do not expect the pace to slow to the extent that it usually would in December.”

Joey Sheahan, Head of Credit, MyMortgages.ie and author of The Mortgage Coach, said: ‘Switching – or at the very least reviewing your mortgage – is something I cannot recommend strongly enough. Every single mortgage holder in the country (bar perhaps those on a tracker mortgage) should undergo a mortgage review every three years or so.

‘I think what precludes a lot of people is either a) they believe the process is complex and convoluted and/or b) they are on a fixed rate and so believe they can’t move. While the process itself does involve some form filling and document gathering, it’s nowhere near as daunting a task as taking out your first mortgage, and if you take the advice of a broker, they’ll do just about all of the leg work.

‘Also, those on fixed rates are not “stuck” with a lender until the end of their fixed term. In many cases, the breakage fee to exit a fixed rate early can be zero, depending on which lender you’re with, and how far away you are from the end of the fixed rate etcetera.

‘The savings could be huge – for example, a borrower could save €56,000 in interest over the life of their mortgage by reducing their rate from 2.95% to 1.95%. Based on €300,000 loan at 60% loan to value over 30 years.’

As the economy opens up and discretionary spending increases, Martina Hennessy, managing director of doddl.ie cautioned first-time mortgage applicants to manage their spending and continue to save regularly, even if they have already saved their full deposit.

‘Even if your income is strong and you’ve saved your deposit, your application will not be successful if you are not clearly demonstrating repayment capacity prior to application.

‘As a general rule of thumb, you should show evidence of €500 per month for every €100,000 you wish to borrow to show repayment capacity.’

Irish mortgage interest rates back to being the most expensive in Eurozone

Posted on 28Sep

Ireland once again has the most expensive new mortgage rates in the Eurozone.

Rates in July were more than double the average for the rest of the 19 countries sharing the euro, according to new figures from the Central Bank.

It said that the average new mortgage rate in Ireland in July was 2.73 per cent, down 5 basis points on the same month last year. The average for the Eurozone was 1.28 per cent, although the financial regulator noted the rate varied considerably across countries.

Ireland is back to having the highest mortgage interest rates in the Eurozone, having trailed only Greece’s high homeloan repayment rates in recent months.

Despite topping the Eurozone mortgage rates league, Ireland’s rate is down 0.09 per cent compared to last year, and at its lowest level since at least August 2017.

Greece (2.58 per cent) and Latvia (2.54 per cent) have the next highest Eurozone mortgage rates to Ireland, while Portugal (0.8 per cent) and Finland (0.71 per cent) charge the lowest mortgage rates.

The weighted average interest rate on new fixed rate mortgage agreements in Ireland was 2.62 per cent in July, a decrease of 5 basis points on July 2020. Fixed rate mortgages accounted for 83 per cent of new agreements over the month.

For new variable rate mortgage agreements, the average interest rate stood at 3.29 per cent in July, a decrease of 15 basis points on July 2020.

The volume of new mortgage agreements amounted to €718 million in July, a 29 per cent increase on the same month last year, when volumes had declined significantly following the onset of Covid-19. It also represented a 5 per cent increase compared with June 2021.

Joey Sheahan, Head of Credit with MyMortgages.ie, said that the increase in the volume of new mortgage agreements in July “reflects buyers ‘catching up’ on purchases they would otherwise have made last year. The volume in August 2020 was just €468 million so we could easily see August 2021 being up 50 per cent+ higher on this number.”

Sheahan continued: “House prices continue to increase and while the Government has put plans in place to deal with the under supply, many people appear to believe that prices may keep rising and they are therefore better off buying now.”

Meanwhile, renegotiated mortgages amounted to €324 million in July, an increase of 29 per cent on the previous year. The high volume of renegotiated mortgages in July is driven by a large volume of expiring fixed-term contracts.

Breaking down the numbers

To put the figures into perspective, according to the Banking & Payments Federation Ireland (BPFI), the average first-time buyer mortgage is now around €250,000.

This means a typical first-time buyer who’s borrowing that amount over 30 years will pay almost €181 a month more for their mortgage compared to the Eurozone average, or almost €2,200 a year.

Why are Ireland’s mortgage rates so high?

One of the reasons why Irish homeowners are paying more than others in the Eurozone is due to a lack of competition in the Irish mortgage market.

The market remains heavily concentrated in the hands of a few main banks, with Allied Irish Banks, Bank of Ireland and Permanent TSB holding around 70 per cent of the mortgage market between them.

A woman looks at the local Estate Agent’s window in Dublin city centre

More competition would help bring down rates, but there’s anecdotal evidence that some foreign lenders are being put off entering Ireland due to the riskier nature of lending here.

Another reason concerns home repossession and the inability of banks to take back a property if the loan has gone bad.

In some European countries a bank will take back ownership of a property within the space of a year or so if the loan isn’t being repaid.

This isn’t the case in Ireland where the number of repossessions, even in cases where the mortgage has been in arrears for years, remains negligible due to the length and complexity of the process and the legal and political impediments faced by banks.

A third reason is that many Irish banks, unlike most other banks in European countries, offer cashback offers, with Permanent TSB offering 2 per cent, EBS and Bank of Ireland offering up to 3 per cent cashback, while Ulster Bank will offer €1,500 towards your legal fees.

If we factor in the cashback costs as well as the extra fee income many European banks generate through set-up and admin fees, Irish mortgage rates, although still high, are closer to the Eurozone average.

Source: https://www.buzz.ie/news/irish-news/irish-mortgage-interest-rates-back-24944099

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